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Economic stimulus provisions reach far and wide

The $800-billion bill that cleared the House last week brings back big government: to school buildings, worker paychecks, electric lines and more. Here's a look at where the money would go.

February 01, 2009|Janet Hook

WASHINGTON — With Congress moving toward passage of an $800-billion-plus economic stimulus plan, big government is back. Unabashed. With a vengeance.

The stimulus is bigger than the Pentagon's entire budget. It's more than the United States has spent on the war in Iraq. And its hundreds of provisions reach into almost every aspect of American life -- including workers' paychecks, local schools, digital television and modernizing medical records.

Perhaps not since the Great Depression has Congress set out to expand and redefine so dramatically the government's role in the economy, all in one bewilderingly complex blueprint.

"The three-decade-long period where the default assumption was that government is the problem, not the solution, has clearly ended," said Bill Galston, a senior fellow at the Brookings Institution and a former aide to President Clinton.

If the enormous stimulus plan succeeds, it's likely to mean a larger, more activist government for years to come. If the plan is judged a failure -- whether because the economic crisis persists or the public becomes disenchanted -- the idea of government as an active player in national life could be discredited anew.

Even as Senate Democrats and Republicans begin sparring over the bill, it remains a challenge just to understand what's in the plan. The version passed by the House last week ran 647 pages; the Senate version, which may come to a vote this week, will probably be longer.

Here is a review of the basic elements, based primarily on the House bill:

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Jobs

In this area, the Obama administration and congressional Democrats are following a popular theory: The best offense is a good defense. Spending and tax cuts are designed to discourage job elimination as well as encourage job growth.

Aid to states, for example, could allow them to avoid cutting services and laying off workers to meet budget-balancing rules. Money spent on highway and other infrastructure projects could open jobs for construction workers and others idled by the housing crash.

Obama's advisors calculated that the stimulus plan would create 3.7 million jobs. Simon Johnson, a former chief economist for the International Monetary Fund, said the projection might be overly optimistic, given the dysfunctional nature of today's economy.

"That's not a criticism of the stimulus," said Johnson, who supports it. "It just means you shouldn't expect miracles."

The Congressional Budget Office estimates 1.2 million to 3.6 million jobs would be created or saved, although the White House has not specified how many jobs it thinks would fall into either category.

If you're one of the millions of Americans already out of work, a job created sounds better than a job saved. But experts say saving jobs aids the overall economy, thereby increasing the likelihood that unemployed people can find work.

The administration's calculations were based in large part on projections of how heavy the job losses would be if a large stimulus package were not enacted: The Jan. 9 report said the unemployment rate would be about 7% at the end of 2010 with a stimulus, and 8.8% without one.

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Tax cuts

A big goal of the stimulus package is to get consumers spending again. So the bill tries to give most of the tax cuts to people who are likely to spend whatever they have -- low- and middle-income workers.

This year and next, the stimulus provides a $500 credit for individuals ($1,000 for couples) against their income and payroll taxes. The credit begins shrinking for individuals who make more than $75,000 a year (or, for couples, more than $150,000). Individuals making more than $100,000 a year ($200,0000 for couples) would get nothing.

The bill also increases by $7,500 the tax credit for first-time home buyers, if they make less than $75,000 a year. It provides a new tax credit for up to $2,500 in college tuition and related expenses for people earning less than $80,000 a year.

And it would temporarily increase the earned income tax credit for the working poor and widen eligibility.

But Edward Leamer, director of the UCLA Anderson Business Forecast, doubts that many consumers will spend the money, given their anxiety over the economy's future. He noted that most of the approximately $96 billion in tax rebate checks sent out as part of last year's economic stimulus -- 119 million people got an average of about $800 -- was saved or used to pay bills.

"Now the situation is actually worse. Consumers are not in a spending mood," Leamer said.

Supporters hope the fact that tax cuts will show up as small increases in paychecks, rather than lump sums, will encourage people to spend the money.

Obama hasn't yet urged Americans to spend, as President Bush essentially did after the Sept. 11 terrorist attacks. And Johnson, the former IMF economist, said he shouldn't.

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